Do sovereign credit ratings take into account physical and transition climate risks? This paper empirically addresses this question using a panel dataset that includes a large sample of countries over two decades. The analysis reveals that higher temperature anomalies and more frequent natural...

Theory suggests that corporate and sovereign bonds are fundamentally different, also because sovereign debt has no bankruptcy mechanism and is hard to enforce. We show empirically that the two assets are more similar than you think, at least when it comes to high-yield bonds over the past 20...

Theory suggests that corporate and sovereign bonds are fundamentally different, also because sovereign debt has no bankruptcy mechanism and is hard to enforce. We show empirically that the two assets are more similar than you think, at least when it comes to high-yield bonds over the past 20...

This study examines the relationship between sovereign spreads and banks in terms of risk transmission, using the seven largest Italian banks as a sample over the period from 2003 to 2023. Our objective is to quantify and compare volatility spillovers, and to investigate whether bank-specific...

Climate change poses a major risk to financial stability by affecting sovereign credit risk through transition and physical risks. Using data from 52 developed and developing countries over two decades, the study finds that transition risk leads to higher sovereign yields, especially in...

Emerging markets have long been viewed as high-risk destinations for investment, particularly investments in companies. Although macroeconomic and political stability risks are higher, this perception also reflects project-level risks, or uncertainty about repayment prospects. Investors, with...

This paper develops a sovereign default model with capital accumulation, long-term debt, and fiscal rules with two distortions: debt dilution and private underinvestment. Fiscal rules generate a long-run economic expansion because they mitigate default risk caused by dilution, which increases...

The aim of this research is to thoroughly investigate the influence of the 2025 Donald Trump Presidential Inauguration on informational efficiency of the U.S. exchange-traded fund market in the context of political risk. The data set includes daily observations for twenty U.S. Exchange-Traded...

We introduce a method that exploits some non-Gaussian features of structural shocks to identify structural vector autoregression (SVAR) models. More specifically, we propose combining inequality restrictions on the higher-order moments of the structural shocks of interest with other...

Political risk is a significant determinant of bond yields and economic growth in both developed and emerging markets and we develop a debt sustainability analysis model with both channels using a country ratings proxy of political risk. Political risk also affects a sovereign's willingness to...

A fundamental problem for sovereigns enacting climate policies is whether they can manage increasing debts as their economies suffer from adverse climate impacts. We develop stochastic debt sustainability analysis integrating a coupled climate-economy model with debt financing scenario...

We examine the 2025 U.S. debt limit episode through the lens of financial markets. First, we document an increase in trading activity in the U.S. sovereign CDS market, and we infer a probability of default from CDS premiums. We find that default risk reached 1% by the November 6 Presidential...

Most of indexes regarding Credit Rating of the national debt bonds are associated to Gross National Product, which involves the well-known Keynesian Multiplicator of the IS-LM Equilibrium. Specifically, a common way of Sovereign Debt evaluation is its percentage of the Gross National Product in...

This note examines the transmission of credit risk of banks to the sovereign using the collapse of the Silicon Valley Bank in March 2023-an event that reverberated globally across banking sectors-as an exogenous shock to identify the effect. The findings suggest a strong transmission of credit...

To analyze Bahamian sovereign spreads, a fundamentals-based model is estimated using data on emerging market economies. The main findings are: first, while both domestic and global covariates are important determinants of spreads, a sizeable effect comes from the interaction of global risk...

This paper studies the impact of central bank independence on sovereign borrowing, using an index that captures institutional constraints on central bank lending to the government across 155 countries from 1972 to 2023. The findings show that tighter lending to the executive significantly...

How do banks respond to geopolitical risk, and is this response distinct from other macroeconomic risks? Using U.S. supervisory data and new geopolitical risk indices, we show that banks reduce cross-border lending to countries with elevated geopolitical risk but continue lending to those...

Political risk is a significant determinant of sovereign debt dynamics. We estimate the sensitivity of bond yields and economic growth to a country-level broad proxy of political risk and develop a stochastic debt sustainability analysis optimization model with both yields and growth channels to...

In recent years, because of the 2008 financial crisis and the evolution of the sovereign debt markets, there has been a significant increase in interest in understanding the factors that determine the risk premium, becoming a key indicator of the financial stability of countries, and a measure...

Research shows that foreign asset expropriation narrows long-term bond spreads, resulting in lower borrowing costs. However, no empirical studies have investigated the effects of expropriation on sovereign bond ratings. Bondholders and sovereign bond issuers track ratings by credit rating...

In response to the scarce evidence regarding herd behaviour in emerging and frontier debt markets, this paper investigates the potential mispricing of MENA sovereign risk. We explore whether this mispricing results from international investor herding, where MENA debt assets are collectively...